Does McBride (LON:MCB) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, McBride plc (LON:MCB) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for McBride

How Much Debt Does McBride Carry?

As you can see below, at the end of December 2021, McBride had UK£147.0m of debt, up from UK£127.6m a year ago. Click the image for more detail. On the flip side, it has UK£34.9m in cash leading to net debt of about UK£112.1m.

A Look At McBride's Liabilities

We can see from the most recent balance sheet that McBride had liabilities of UK£251.5m falling due within a year, and liabilities of UK£131.7m due beyond that. On the other hand, it had cash of UK£34.9m and UK£125.4m worth of receivables due within a year. So it has liabilities totalling UK£222.9m more than its cash and near-term receivables, combined.

This deficit casts a shadow over the UK£75.9m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, McBride would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if McBride can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year McBride had a loss before interest and tax, and actually shrunk its revenue by 11%, to UK£643m. That's not what we would hope to see.

Caveat Emptor

While McBride's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping UK£9.2m. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. That said, it is possible that the company will turn its fortunes around. But we think that is unlikely, given it is low on liquid assets, and burned through UK£4.0m in the last year. So we consider this a high risk stock and we wouldn't be at all surprised if the company asks shareholders for money before long. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for McBride (1 is a bit concerning) you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.